Bankruptcy judge sets schedule for resolving Southern case

The judge presiding in the bankruptcy of a Billings-based wholesale power cooperative set deadlines Tuesday for the trustee to file a reorganization plan, saying he would like to wrap up the case by May.

“We’ve been doing this long enough,” U.S. Bankruptcy Judge Ralph Kirscher said after listening to an afternoon of arguments by attorneys in the complex case of Southern Montana Electric Generation and Transmission Cooperative.

The trustee for Southern’s bankruptcy, which has been pending for 14 months, filed a preliminary proposal last Friday, outlining a restructuring plan that would keep Southern intact and continue its ownership of the Highwood Generating Station near Great Falls to pay off creditors.

The largest secured creditor is Prudential Capital Group, which loaned Southern about $85 million to build Highwood, a 40-megawatt gas-fired plant that is restricted to part-time operations during times of peak energy demand.

The hearing over scheduling disputes between Southern and three of its members also revealed difficulties the trustee has encountered in trying to market Highwood and to keep Southern together.

Southern is composed of five rural co-ops and the city of Great Falls. Yellowstone Valley Electric Co-op, Beartooth Electric Co-op and Great Falls all are suing Southern, seeking to leave or to terminate their contracts for various reasons. Fergus, Tongue River and Mid-Yellowstone co-ops also are members.

Kirscher set Feb. 15 as the deadline for Lee Freeman, Southern’s trustee, to file a plan and a disclosure statement of Southern’s operations and finances and the bankruptcy proceedings and other information.

The judge also set subsequent hearing dates with possible confirmation of a plan by April or May. Kirscher said all plans would be on the same track for consideration if other parties also file plans. He did not set a deadline for other parties to file plans or disclosure reports.

“We’re very pleased” with the judge’s ruling, said Billings attorney John Crist, who represents Yellowstone Valley.

Yellowstone Valley has not decided whether to file its own plan and is in settlement talks with the trustee, Crist said.

Crist also questioned the trustee’s plan for Southern to emerge from bankruptcy as an entity.

“That doesn’t make sense if the majority of members don’t want to go forward,” he said.

Responding to questions from Crist at Tuesday's hearing, Freeman testified that he sent out “easily dozens” of requests for proposals for Southern and received seven responses.

Basin Electric Power Cooperative was the only one that was interested in Highwood and offered $30 million, Freeman said. The amount is less than half of what it cost to build the plant, which was completed last year.

Highwood runs “occasionally,” Freeman said. Operating the plant is uneconomical because it’s cheaper to buy power on the open market, he said.

Since bankruptcy, Highwood has cost Southern about $2 million, Crist said. Freeman conceded that it was "a substantial amount."

Freeman agreed with Crist’s assessment that there was “no reasonable prospect” for selling Highwood.

The trustee also said he hopes to come up with a mutually agreeable plan among Southern’s members despite some members’ desire to leave.

Freeman is in mediation with Yellowstone Valley and Great Falls and “I think we’re making progress,” he said.

Fergus, which represents about 28 percent of Southern’s power demand, “goes back and forth” about whether to stay, Freeman said.

Yellowstone Valley, Beartooth and Great Falls together make up 54 percent of Southern’s power demand, with Yellowstone Valley having the largest share at 38.5 percent.

Freeman said he is working on a reorganization plan that would lock in a three- to 10-year power contract for Southern at lower-cost electricity so it could begin repaying its Prudential debt. Money to pay creditors would come from the difference between the lower-cost power and the higher rate that Southern charges its members, he said.

Yellowstone Valley, however, was not part of the Highwood project and is not being included in the plan to repay Prudential, Freeman said.

Southern’s members borrowed the money and now “want to walk away from the debt,” Freeman said. As trustee, he has a duty to balance creditors’ needs with those of Southern’s members, he said.